Is That a Bull in the Corn Market?

After many dismal months, there is now plenty of positive news coming out of the corn and soybean markets.

Mark February down as a good month for corn and soybean prices. After watching corn prices dip down toward $4, the market has turned around. March 2014 corn closed at $4.57 on Feb 28, while May 2014 corn closed at $4.63. "You have to go back to September to see prices this high," says Jerry Gulke, president of the Gulke Group.

Soybean prices are even stronger. March 2014 soybeans closed Friday at $14.14, around $2 higher than where the contract was in November.

Hear Gulke's full audio analysis:

Gulke says during the last few months, the market has digested a lot of information – several monthly Crop Production and World Agricultural Supply and Demand Estimates reports and a very bearish USDA Agricultural Outlook Forum. "And, we’ve had farmers selling on the rallies," he says. "We’ve absorbed all that information and, in corn, we closed higher than we have in five months."

With the end of February, the crop insurance projected price can now be determined. The spring insurance prices for corn will likely to be around $4.60 and $11.35 for soybeans.

With these levels, Gulke says, crop insurance could save farmers from a major loss, but it’s not a money-maker like it has been the last few years. "The trade knows more about insurance than they did three or four years ago," he says. "They know there is a support under there, but if the prices fall too soon, we might not plant as much corn."

That means the market may need to incentivize farmers to plant certain crops. "We can stand some reduction in corn acres, but we can’t stand a 5 to 6 million acre reduction," Gulke says. "The market has come to realize that we need every acre of corn, soybeans and wheat. Globally we are increasing demand for foodstuff and feed."

Additionally, Gulke says, farmers have a lot of grain holding power. "We’ve got some corn in the bin but the market doesn’t know when we’re going to sell it," he says. "If you haven’t sold corn by March 1—when loans are coming due and we’re getting ready to plant—then maybe we are better holders than the market thinks we are."

Overall, Gulke is encouraged by the current market dynamics. "If we hadn’t seen prices collapse before, I would say that in corn, this is one of the most bullish formations we’ve seen for a long time," he says.